This post is part 6 of our 10 part series on Financial Behavioral Insights from our Financial Planning Performance in the New Behavioral Economy White Paper. The financial behavior insights will help you gain greater self-awareness for recognizing some of your own behavioral tendencies and also those of investors.
Behavioral Insight 6: Spontaneous Intuitive
Jenny, 48, has been investing for some years now based on her gut feel of what she thinks is going on in the economy and the behavior of the markets. She has a clear idea of what she wants out of life, is confident in her abilities and is quite happy making investment decisions based on what feels right. Jenny by nature does not like reading a lot of research. Just some graphs, illustrations and a few bullet points are enough for her. For Jenny too much analysis gets in the way. She feels too many plans will lock her in and opportunities may be missed.
A naturally instinctive and flexible person with a clear vision will be a Spontaneous Intuitive who is confident with the financial decisions they make but can be impulsive.
Communication key: Provide the broad facts and encourage them to discuss their thinking out loud.
Jenny is the Spontaneous Intuitive who will generally be flexible enough to take opportunities when they are there and not get stuck in over-analysis. This type of person will usually make very confident decisions unless he or she has experienced a very negative event. The key is that they need to have enough prior investment experience to intuitively know that their gut feeling is right. Once a decision is made, a Spontaneous Intuitive will run with it and not look back. They will have a strong sense that things will work out.
The struggle for them is not to be too overconfident in their abilities and make rash decisions that they find out later were poor. The poor decisions can come from insufficient research and also not taking time out for listening to others.
The other dimension a Spontaneous Intuitive must address is that because of their flexible nature they may end up with an unstructured investment portfolio. The portfolio will reflect no attention to asset allocation, appropriate risk weighting or diversification. This is not to say they will be failing, either. Nevertheless, they could suffer from overconfidence and take some big chances that are not well thought out.
An advisor who is a Spontaneous Intuitive will be strong at adapting to changing circumstances and making instinctive decisions. However, these types of advisors need to ensure they have access to solid research to support their recommendations. Also, they need to provide enough for structure for clients and set appropriate boundaries.
The Spontaneous Intuitive client needs the advisor to provide objective analysis to validate their intuitive feel. The advisor should not allow the Spontaneous Intuitive client to become too over confident in their abilities and make impulsive decisions. Ask the client: Tell me about the best financial decision you made? How do you set boundaries in your life and financial decision-making?
What are your thoughts? For additional information on discovery through behavioral profiles, click here.